Eastbourne Citizens Advice Bureau
Financial Literacy
WAGES
sponsored by
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In this unit we will look at
• a standard wage slip
• Tax
• National Insurance
• P45 and P60
• The National Minimum wage
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This is a typical layout for a payslip
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Here we see the
employer’s name
and your name.
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This is your
national
insurance
number
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WHAT IS NATIONAL INSURANCE?
National Insurance contributions are payments
which most people make towards the National
Health Service and to enable them to get
entitlement to some social security benefits
and state pension.
For employed earners, contributions are paid
as a percentage of income above a certain
level. Self-employed people pay a set weekly
rate and, if their profits are high enough, a
percentage of their income.
Someone who is unemployed or unable to
work through sickness may have contributions
credited.
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The Inland Revenue and Department for Work and
Pensions (DWP) use your national insurance number
(NINO) to identify your contribution and benefit record.
The number always consists of two letters, six numbers
and a letter, for example, AB 123456 C.
National Insurance is currently 12%, but it doesn't start
until you earn at least £149 a week.11
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This is your Tax
Code
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Income Tax
Income Tax is money deducted from your earnings which is paid to the
government. The government department in charge of collecting tax is the
Inland Revenue.
If you work for an employer your tax and National Insurance will be paid
automatically. It comes straight out of your wages before you receive them.
This is known as Pay As You Earn (PAYE).
Everybody can earn a certain amount (known as the Personal Allowance)
before they start paying tax or National Insurance. From April 2013 the
personal allowance is £9,440. This figure changes yearly.
Normally you pay:
• 20% on anything you earn between £9,440 and £32,010)
• 40% on anything between £32,011 and £150,000 and
• 45% on anything over £150,000
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The number in the tax code is usually three figures. It represents the
total of all available allowances, minus any amount to be deducted to
cover other income or benefits, and with the last digit removed. The
allowance as shown by the number in the tax code is then rounded
up.
The letter indicates what kind of tax code it is. In this example L
means the Basic Tax allowance.
For example, if your total income is £9,992, of which £9440 is not
taxable, your code is 944L.
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The payment method is BACS
BACS stands for Bankers
Automated Clearing System.
BACS is an automated service
operated by banks and building
societies. It means the money is
transferred directly from the
company’s account into the
employee’s bank account.
You may also be paid by cash
or cheque.
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There are two entries,
one for basic and one
for overtime
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Add together the 2 rates of
pay giving a total of £934.11
xxxxxxx
This is subject to tax and
National Insurance
deductions.
Total pay is also known as
Gross Pay
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The amount of tax deducted
is spread out across the year.
The Deductions column
shows the amounts of Tax
and National Insurance.
The total Deductions is
shown here
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Any other deductions which
are taken from your wages at
source such as union
subscriptions, student loan
repayments and private
pension schemes will be
shown in this column.
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So, total pay minus total
deductions gives the amount
you receive in wages.
£934.11-£63.77 = £870.34
This is known as NET pay
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Here we see the total figures
paid this year.
It shows
• Total pay (gross)
• How much of that is taxable
• The total tax paid
• Total National Insurance
paid by the employer and by
the employee
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Any payments made to a
pension scheme either by
the employer or employee
would be shown here.
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When you leave a job or
you are dismissed you
should receive a P45
from your employer
P45 shows the amount
that you have earned and
how much tax you have
paid this year.
You will need this form
to give to your next
employer or to claim
benefits.
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A P60 details your earnings and
tax deductions for the current tax
year and is provided by your
employer.
The law requires you to keep a
record of your taxable income
for at least 22 months after the
end of the current tax year so
make sure you keep it in a safe
place as duplicates are not
always easy to get.
Self-employed people must keep
records for up to six years after
the relevant tax year.
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National minimum wage (NMW)
Workers in the UK aged 16 (and above school leaving age) or over
are now legally entitled to a national minimum hourly wage,
regardless of where they work, the size of the firm or the worker’s
occupation.
This includes casual labourers, agency workers, homeworkers,
workers on short-term contracts and workers employed by
subcontractors.
Before October 2004, workers aged between 16 and 17 were not
entitled to the national minimum wage.
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There are some workers who are not covered by the national minimum
wage. These are:• workers aged under 16
• some apprentices
• some people living and working within a family such as nannies and au
pairs, where they work and they share meals with the family and they do not
have to pay towards their accommodation costs or meals
• self-employed people
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Workers who are not covered by the national minimum wage (continued)
workers aged under 16
• members of the armed forces
• share fisherman
• prisoners
• voluntary workers
• some trainees on government schemes.
• workers who are homeless or living in a hostel, who are entitled to income
support/income based jobseeker’s allowance and who are taking part in a
scheme run by a charity which provides them with work
• residential members of religious communities.
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How much is the NMW
For most workers aged 21 and over, the standard hourly rate of the NMW is listed
below.
Workers aged between 18 and 20 or apprentices are only entitled to be paid at a
lower rate.
Workers aged 16-17
£3.68
Workers aged 21 and over
£6.19
Workers aged between 18 - 20 - reduced rate NMW
£4.98
Apprentices under 19 or 19 and over in the first year
of apprenticeship
£2.65
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National Minimum Wage Helpline
If you want to find out if you are eligible to claim the NMW you can contact the
Pay and Work Rights Helpline on Tel: 0800 917 2368
Or visit the website at www.gov.uk.
If you think you are entitled to the NMW but your employer is
not paying it to you
If you think you are entitled to the national minimum wage and are not receiving it you
should contact the NMW helpline (see above) or seek the help of an experienced
adviser, for example, at a Citizens Advice Bureau.
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